In today’s volatile economic climate, investment diversity has taken center stage – but don’t forget about, or neglect, the old standbys. IRAs, in particular. It might surprise you to know that IRAs hold the single largest share of the $13 trillion in U.S. retirement assets.¹ But to be at their most effective, there are a few steps you need to take each year to ensure their health in addition to diversifying:

First, if you are over 701/2 years of age, be sure to take all your RMDs (required minimum distributions) for the year. Also be aware that if you have become the beneficiary of an IRA, you must begin taking your required minimum distribution beginning the year after the death of the account owner.

On the flip side, if you are still contributing to your IRA, make sure you haven’t contributed too much into for 2010 – that can land you with a 6% penalty. And double check that your contributions actually did go into the correct account – Regular IRA, Roth, etc.

Speaking of Roth IRAs – and contrary to a common misconception – if you’ve considered converting your traditional Ira to a Roth IRA, the funds must actually leave the IRA by Dec 31^st to be reported and taxable as a 2010 distribution conversion. Sidebar on Roth IRAs: you can pay the taxes over 2 years instead of one on the conversions and Roth IRAs may be used to fund a credit shelter or by-pass trust.

Review your beneficiaries and make sure you have both a primary and contingent designation. If this is not kept up to date and viable, the IRA proceeds will revert to the estate and lose various tax advantages. This review is especially crucial if you have ever been divorced. In a recent court decision, a named beneficiary trumped a divorce – and that might not reflect your current wishes. Also, carefully consider and discuss your decision to name a Living Trust as your beneficiary; you will lose “stretch” and tax benefits and later changes to the trust can have an even larger impact on the IRA.

Additional thoughts to mull over regarding your IRA:

If you have one or more 401(k)s sitting with former employers, consider rolling that money over to an IRA. You’ll typically get better investment choices, lower costs and more control of your investment assets.

If you converted a traditional IRA into a Roth IRA and now realize that your income taxes were higher than expected due to the conversion, or you’re short money to pay the income tax or you’re unwilling to pay the income tax, consider a “recharacterization,” That is, consider putting the money in the Roth IRA back into your traditional IRA.

Check with your IRA custodian or 401(k) plan administrator as to whether they allow for the so-called “stretch” for beneficiaries. The stretch  is a “ruling from the grave” term that means that beneficiaries can use their own life expectancy for distributions. In addition, check whether the custodian or plan administrator will accept a durable power of attorney, and disclaimers, which can have a large impact on the success of your estate plan in general.

Find this is bit more information than you expected?  As I tend to say a lot, “it’s what you don’t know that you don’t know that will hurt you.”  And that’s what we’re here for. Working with a professional who has the ability and experience to give you a full checkup can help keep you in top shape.

¹ Craig Copeland, senior research associate at EBRI
Securities & Advisory Services offered through VSR Financial Services, Inc., a Registered Investment Adviser and Member FINRA/SIPC. Kennedy Financial Services is independent of VSR Financial Services, Inc. VSR does not provide tax or legal advice.